Buy a House in Canada With Bad Credit

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When it comes to buying a house with bad credit in Canada in 2022, there are just so many different things you have to consider. I had this same problem and spent the better part of two days to find out what my options were. Here’s the bottom line — while bad credit shouldn’t stop you from being able to buy a house with a mortgage later, it does complicate things. Maybe not for everyone, but definitely for me (and probably for you, too).

But this should not be the case now. Read this guide to the end so you know how to buy a house even with bad credit in 2022. Let’s first understand what happens when you submit your mortgage application for a house.

What Do Lenders Seek in a Mortgage Application?

There are some important factors that almost every lender sees before even considering the application for a mortgage. Considering the fact that there are three types of lenders including lenders A like banks, lenders B like a trusted company and lenders C like private lenders, the approval process for mortgage loans is different as well. Below are some of the notable points that will likely be examined in a mortgage application.

Credit Rating

The three-digit number that incorporates a credit user’s behaviours is, of course, one of the most essential components of how mortgage rates are established for potential borrowers. If you’re considering applying for a mortgage loan, you should first check your credit score. Most major banks and other institutions require a credit score of 620 or higher before they consider someone as a potential borrower. 

Credit History and Report

Remember that your credit score and credit report will be scrutinised by lenders, particularly prime lenders. Lenders will be able to see who else you owe money to, as well as a full history of how you’ve utilised your credit products in the past (on-time payments, missed/late payments, defaults, and so on). This will offer them a sense of how trustworthy you will be in the future with your mortgage.

Employment and Income History

Lenders want to know that a borrower will be able to repay them, thus their family income is sometimes equally as significant as their credit score. As a result, when you apply, your employment history and financial records will be scrutinised in order to assess your risk of defaulting. A difficult employment history may make a lender doubt your capacity to hold down a job, regardless of how much money you have in your bank account.

The same principle applies to your earnings. Your prospects of getting a better rate will rise if your income is “confirmable” through notices of assessment from the Canada Revenue Agency. Lenders will need to assess their average yearly income before making a decision for “non-confirmable” salaries, which are common among self-employed and commission-based professionals.

Making a Down Payment

The more down payment a potential borrower can put on a home, the better. Borrowers with good credit are typically deemed a lower risk, therefore down payments as low as 5% of the home’s value are commonly accepted. Borrowers with bad credit, on the other hand, will almost certainly need a 20% down payment. On the plus side, if a borrower is able to put down a higher down payment, they will not only have more home equity and a shorter payment period, but they will also likely be able to get better mortgage rates.

History of Debt

Because a mortgage is one of the most expensive investments a borrower can make, potential lenders will undoubtedly look into their other obligations. Unpaid credit card bills, vehicle loan payments, or any other high-interest debt will have an impact on the borrower’s ability to obtain a mortgage. After all, they’re unlikely to lend to someone who owes money all over town and has a poor track record of repaying their debts. If you have a lot of other high-interest debt to pay off before applying for mortgages, it’s preferable to take care of it first.

Property’s Market Value

This is especially crucial for subprime or private lenders working with potential consumers with weak credit. After the borrower has found a home, they must have it assessed and ranked in terms of how valuable an asset it is. If a lender is concerned about a borrower with poor credit, they must be convinced that the property is worth the investment if and when the borrower defaults on their payments.

Buy a House with Bad Credit: 4 Options

Here are a few steps you can take to secure a high-risk mortgage, and then buy a house with bad credit in Canada.

Find a Stable Job

If you have a stable job with a slightly bad credit score, the prime lenders will approve you for the mortgage. However, if you have an unstable job and also a bad credit score, you are a risky investment and prime lenders will likely avoid you. So, if you want a mortgage, the best solution is to first find a stable source of income.

Look for Subprime and Private Lenders

If your credit score is not good, then you have your chances with only subprime and private lenders. If your score is below 600, you might have no other choice but to find a private lender. Likewise, if your credit score is slightly better, you can qualify with a trusted company or a bad credit lending institution. However, know that with private lenders, you will have to put a down payment of 20% or more and your interest rate will be 10-15% or even more.

Save for Large Down Payment

Since you can’t qualify with A-lender, you will have to save a large down payment so you can qualify with private lenders. Not only does it help you get approved by subprime or private lender but it also proves that you are working on your finances by saving them money. This means, you are less of a financial risk for the lenders and they can approve you.

Improve Your Credit Score

If you do not intend to go for any option defined above, then take the time and make the effort to rebuild your damaged credit score. One best way to do this is by being responsible for any credit products and financial commitments you have. This includes paying your bills and credit card statements on time.

The Bottom Line

At Lionsgate, we specialize in helping people get the extra cash they need, obtain funding for private mortgages, as well as for other real estate transactions. If you are looking to buy land in Canada, get a mortgage or apply for a loan, fill out the form below. Or, You can leave us a message and we will try to connect you with local lenders and sources that best meet your needs.

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